1 MARC M. SELTZER (CA Bar No. 54534) SUSMAN GODFREY L.L.P. 2 Suite 950 1880 Century Park East 3 Los Angeles, California 90067-1606 Telephone: (310) 789-3100 4 STEPHEN D. SUSMAN 5 CHARLES R. ESKRIDGE III SUSMAN GODFREY L.L.P. 6 1000 Louisiana, Suite 5100 Houston, Texas 77002-5096 7 Telephone: (713) 651-9366 8 PARKER C. FOLSE III JONATHAN M. SHAW 9 IAN B. CROSBY EDGAR G. SARGENT 10 SUSMAN GODFREY L.L.P. 1201 Third Avenue, Suite 3090 11 Seattle, Washington 98101 Telephone: (206) 516-3880 12 Attorneys for Plaintiff Be Incorporated 13 ______14 IN THE UNITED STATES DISTRICT COURT 15 NORTHERN DISTRICT OF CALIFORNIA 16 SAN FRANCISCO DIVISION ______17 BE INCORPORATED, 18 Plaintiff, COMPLAINT AND JURY DEMAND 19 vs. 20 CORPORATION, Case No. 02837MEJ 21 Defendant. 22 ______23 24 COMPLAINT 25 1. Be Incorporated (“Be”), brings this action to recover damages under the antitrust laws 26 of the United States and the laws of California for the destruction of its business as a direct result 27 of the illegal and anticompetitive practices of Microsoft Corporation (“Microsoft”). Microsoft has 28 long held and willfully maintained monopoly power in the worldwide market for Intel-compatible

COM PLAINT AND JU RY DEM AND - 1 1 personal (“PC”) operating systems. Be developed and marketed its technically acclaimed 2 , BeOS, in an effort to enter that market. BeOS threatened to undermine the barriers 3 to entry that protect the dominant position of Microsoft’s Windows line of products (collectively, 4 “Windows”). As a consequence, Microsoft exercised its monopoly power to exclude BeOS from 5 the market, and forced Be to cease doing business. Sensing that BeOS posed a significant threat to 6 its illegal monopoly, Microsoft smothered Be by using its dominant market position to prevent 7 computer manufacturers from installing Be's technically superior operating system. Microsoft’s 8 exclusionary exercise of monopoly power has extinguished the value of Be as a going concern, 9 deprived Be of future profits, and denied Be’s shareholders the return of their invested capital. Be 10 seeks relief for these and other injuries under Sections 1 and 2 of the Sherman Act, Section 3 of the 11 Clayton Act, the Cartwright Act, the Unfair Competition Act, and the common law of California, 12 and alleges as follows:1 13 14 PARTIES 15 2. Plaintiff Be Incorporated is a Delaware corporation. At all times relevant to this 16 Complaint, Be’s principal place of business has been in Menlo Park, California. Plaintiff will 17 soon be relocating its principal place of business to Mountain View, California. 18 3. Defendant Microsoft Corporation is a Washington corporation with its principal 19 place of business at One Microsoft Way, Redmond, Washington, 98052. 20 JURISDICTION 21 4. Plaintiff brings this action under the federal antitrust laws to recover damages for 22 injury it has sustained to its business and property. Therefore, the Court has jurisdiction over this 23 matter pursuant to Section 4 of the Clayton Act, 15 U.S.C. §§ 15, and 28 U.S.C. §§ 1331 and 24 1337. Plaintiff also seeks relief under California state law. The Court has supplemental 25 jurisdiction over those state law claims pursuant to 28 U.S.C. § 1367. The Court also has 26 jurisdiction over those claims pursuant to 28 U.S.C. § 1332 because this is an action between 27

28 1Except as to its own conduct, Be’s allegations are based upon information and belief.

COM PLAINT AND JU RY DEM AND - 2 1 citizens of different States and because the amount in controversy substantially exceeds the sum 2 or value of $75,000. 3 VENUE 4 5. Venue is proper in this district under 15 U.S.C. §§ 15 and 22, and under 28 U.S.C. 5 § 1391(b) and (c) because (i) defendant Microsoft transacts business and is found within this 6 district; (ii) plaintiff’s principal place of business is within this district; and (iii) a substantial 7 portion of the events giving rise to plaintiff’s claims occurred within this district. 8 INTRADISTRICT ASSIGNMENT 9 6. Plaintiff requests that this case be assigned to the San Francisco Division of this 10 District, pursuant to Civil LR 3-2(c) and (d). At all relevant times, plaintiff’s principal place of 11 business was located in San Mateo County, California, and a substantial part of the events that 12 gave rise to this cause of action occurred in San Mateo County. 13 NATURE OF THE CASE 14 Development of BeOS 15 7. Be was founded in 1990 for the purpose of creating a powerful, graphical, easy to 16 use computer operating system capable of handling seamlessly on low-cost personal 17 the vast streams of data that its founders foresaw would be unleashed by the multimedia 18 revolution. This operating system, BeOS, was designed from the outset to be portable — that is, 19 to be capable of being easily adapted to run on computer architectures other than that on which it 20 was originally developed. 21 8. By 1997, around the time that BeOS was emerging from its development stages 22 and approaching readiness for widespread commercialization, the Intel-compatible PC was by far 23 the most powerful, least expensive, and most widely-adopted computing architecture for general 24 consumers. That year, in collaboration with Intel, Be created a version of BeOS for the Intel- 25 compatible PC. From the time of its release in Fall 1998, BeOS for Intel received widespread 26 praise from journalists and opinion leaders for its technical capabilities, speed, and ease of use. 27 Microsoft’s Monopoly Power 28 9. As of 1998, and at all times relevant to this lawsuit, Microsoft (with Windows)

COM PLAINT AND JU RY DEM AND - 3 1 possessed monopoly power in a product market consisting of the licensing of operating systems 2 for Intel-compatible PCs. The relevant geographic market is world-wide in scope. In that 3 market, Microsoft’s market share is approximately 95%. 4 10. Throughout its dominance of this market, Microsoft’s monopoly power has been 5 protected by a durable barrier to entry to new competitors. This barrier, which has been termed 6 the “applications barrier to entry,” arises from the fact that few consumers will purchase an 7 operating system that does not already possess a large variety of useful and widely compatible 8 software applications, but few software developers will create applications for an operating 9 system that is not already in wide use by a large number of consumers. 10 11. Through its own behavior, including but not limited to the behavior described in 11 this Complaint, Microsoft has artificially raised barriers to entry into the relevant market in 12 numerous ways. Microsoft’s conduct, including the conduct described in this Complaint, has had 13 a direct, substantial, and adverse effect on competition by foreclosing competition on the basis of 14 price and performance and by stifling innovation. Buyers of PCs and software have thus been 15 forced to pay higher prices for less innovative, inferior products. 16 Be’s “Dual-Boot” Strategy 17 12. Be recognized that the applications barrier to entry described above would make 18 any immediate attempt to replace Windows prohibitively expensive. Be therefore attempted to 19 enter the market for Intel-compatible PC operating systems by first positioning BeOS as a 20 complement to Windows. 21 13. As part of this strategy, Be offered to license BeOS to computer manufacturers 22 (known in the industry as “original equipment manufacturers” or “OEMs”) for preinstallation on 23 PCs in a “dual-boot” configuration. A “dual-boot” configuration allows consumers to choose 24 which operating system to load each time they start their computers. In such a configuration, 25 consumers could, for example, launch BeOS at startup if they wished to use BeOS’s unique 26 capabilities to manipulate real-time audio and video streams, but could also launch Windows if 27 instead they needed to write a letter or create a spreadsheet using Microsoft’s popular Office 28 suite, or wished to use some other Windows-supported application.

COM PLAINT AND JU RY DEM AND - 4 1 14. Be’s “dual-boot” strategy was targeted at overcoming the applications barrier to 2 entry in a number of respects. It would allow consumers to access the useful and superior 3 capabilities of BeOS without having to choose irrevocably between BeOS and Windows. As a 4 result, Be would not need to have application support for BeOS equivalent to that available for 5 Windows right away in order for consumers to find it immediately useful alongside Windows. 6 15. Most significantly, Be sought to ensure that, as BeOS became deployed more 7 widely on dual-boot computers, its growing part-time user base would make it a more attractive 8 target for application developers. More applications would attract more users of BeOS, in turn 9 attracting more developers, and so forth. By using the dual-boot strategy to initiate this “virtuous 10 spiral,” Be intended that BeOS and its compatible applications ultimately would overcome the 11 applications barrier to entry and compete in the market for Intel-compatible operating systems as 12 a complete replacement for Windows. 13 The Importance of OEM Preinstallation 14 16. Preinstallation by OEMs is the only effective channel for operating system 15 distribution for a number of reasons. After-market installation of operating system software has 16 historically been intimidating and complex to end-users and presents the inherent risks that data 17 will be lost or that computers will be rendered inoperable. Even when the complexities of 18 operating system installation are simplified by advanced configuration programs, end-users 19 remain highly reluctant to tamper with the basic configuration of a functioning computer. 20 Providing technical support to assist consumers in performing after-market installation also 21 greatly increases the cost of supporting the operating system. Delivery of the many megabytes of 22 software code required for installation via CD-ROMs or over the Internet further increases the 23 cost disadvantage of after-market installation. 24 17. Preinstallation by OEMs avoids all of these barriers to delivery and installation of 25 an operating system for dual- alongside Windows. The code is delivered on the hard disk 26 already installed and configured without the need for any user intervention or any risk of data 27 loss or disabling the computer. With preinstalled dual-boot machines, the vast majority of 28 consumers who would be reluctant to install a computer operating system themselves can

COM PLAINT AND JU RY DEM AND - 5 1 experiment with and experience an alternative to Windows without hassle or risk. Because 2 OEMs control the selection of the hardware to be used in a computer preconfigured in this 3 manner, compatibility concerns and related support costs can be essentially eliminated. 4 18. For Be, the key to starting the “virtuous spiral” was the rapid deployment of BeOS 5 on as many Intel-compatible PCs as possible. Indeed, Be eventually offered to licence BeOS for 6 dual-boot preinstallation to major U.S. OEMs at no cost. 7 The Experience 8 19. In early 1998, Hitachi approached Be about including BeOS on a line of desktop 9 PCs. In September 1998, Hitachi verbally committed to Be that it would load BeOS alongside 10 Windows on a line of its personal computers. 11 20. Be agreed to provide, and Hitachi agreed to install, “boot manager” software that 12 would load before either operating system and allow users to choose which operating system to 13 launch when the computer was turned on. In addition to the boot manager, Hitachi agreed to 14 install an icon on the default Windows desktop screen which, when clicked, would shut down 15 Windows in accordance with Windows procedures and launch BeOS. 16 21. In October 1998, Hitachi informed Be that it was going to notify Microsoft of its 17 intention to preinstall BeOS in a dual-boot configuration with Windows on its FLORA Prius line 18 of computers. 19 22. In November 1998, Hitachi informed Be that it could not install Be’s boot 20 manager or BeOS launcher icon on its computers, and that BeOS would have to be booted off a 21 floppy disk. 22 23. Hitachi eventually explained that the terms of its license with Microsoft 23 prohibited preinstallation of another operating system in a dual-boot configuration. Hitachi also 24 revealed that after it notified Microsoft of its intention to preinstall BeOS, Microsoft sent two 25 U.S. managers to Japan who expressed their “anger” with Hitachi over its arrangement with Be, 26 and “reminded” Hitachi of the terms of its Windows license. 27 24. Hitachi eventually shipped a line of computers with BeOS preinstalled on the hard 28 drive. However, those computers were not preconfigured to allow the user to boot into BeOS.

COM PLAINT AND JU RY DEM AND - 6 1 Indeed, nothing in the computer’s start-up sequence indicated the presence of BeOS. To enable 2 BeOS, the user was required to start the computer from a floppy diskette and follow an involved 3 procedure to install the boot loader software and launcher icon manually. Hitachi’s decision not 4 to preinstall these items resulted directly from threats by Microsoft and restrictions in Hitachi’s 5 OEM license for Windows that prohibited alteration of the Windows boot . 6 Microsoft’s Restrictive Licensing Practices 7 25. In 1998, and at all times relevant to this lawsuit, Hitachi’s license from Microsoft 8 for Windows contained a number of interlocking restrictions that effectively prevented an OEM 9 from preinstalling a competing operating system in a dual-boot configuration. Microsoft’s 10 licenses with all major OEMs contained similar provisions. 11 26. Microsoft’s licenses required OEMs to install Windows only using Microsoft’s 12 OEM Preinstallation Kit (“OPK”), which wiped clean any operating systems already on the 13 computer hard disk and installed the Windows operating system, along with Microsoft’s boot 14 loader software, which could only be used to boot Windows. 15 27. Microsoft’s licenses also prohibited OEMs from deleting or altering any portion 16 of the Windows installation, without exception for the boot loader, once it had been placed on 17 the hard disk by the OPK. 18 28. Microsoft’s licenses further prohibited alteration of the Windows startup sequence 19 once Windows had begun to boot. 20 29. Finally, Microsoft’s licenses prohibited the configuration of any portion of the 21 Windows system to facilitate the launch of any program to run prior to booting Windows. 22 30. Together, the foregoing terms prevented an OEM subject to a Microsoft license 23 from preinstalling a bootloader other than Microsoft’s, or even from preinstalling a program that 24 would allow users to install another bootloader themselves by clicking on an icon on the 25 Windows desktop. Without the ability to install a competing bootloader, an OEM was precluded 26 from preconfiguring a computer to dual-boot a competing operating system alongside Windows. 27 Microsoft’s Exclusionary Pricing Practices 28 31. Microsoft did more than merely enforce the restrictive terms of its OEM licenses.

COM PLAINT AND JU RY DEM AND - 7 1 Microsoft threatened to raise the price of Windows to Hitachi if Hitachi installed Be’s boot 2 manager on its machines. 3 32. Microsoft grants discounts on Windows to OEMs who meet a variety of criteria. 4 Achieving the highest level of discounts on Windows is crucial to major OEMs, because margins 5 on hardware are very low. Microsoft offers its highest level of discounts only to those OEMs 6 who configure their computers for a “no-operation” boot into Windows, i.e., those who configure 7 their computers to boot straight into Windows after the power is turned on with no further 8 intervention by the consumer. 9 33. Installation of Be’s boot manager to allow dual-booting of BeOS thus would have 10 risked Hitachi’s eligibility for discounts on Windows from Microsoft. 11 34. In addition to imposing restrictive objective criteria on OEMs’ eligibility for 12 Windows discounts, Microsoft ultimately granted or withheld discounts according to its 13 subjective discretion. As a result, Hitachi was reluctant to take any actions that Microsoft might 14 deem hostile to its interests for fear of losing Windows discounts, even if Hitachi complied with 15 all of Microsoft’s stated licensing and eligibility restrictions. 16 35. In these circumstances, Hitachi tolerated an extraordinary degree of interference 17 by Microsoft in its business relations with Be. Hitachi made clear that it would not license BeOS 18 under any conditions without first informing Microsoft. Indeed, the day before Hitachi 19 announced publicly that it would ship BeOS preinstalled on some of its machines, Microsoft 20 executives met with Hitachi representatives and demanded to review and approve Hitachi’s 21 public announcement materials in advance. 22 36. In addition to restricting Hitachi’s ability to preinstall BeOS, Microsoft also 23 limited Hitachi’s ability to promote it by imposing conditions on Hitachi’s eligibility to use and 24 display the Windows compatibility logo. Under Microsoft’s eligibility criteria, Hitachi risked 25 losing its Windows discounts if it displayed the BeOS logo on its products or packaging 26 alongside the Windows logo. 27 37. As a result, Hitachi’s FLORA Prius computers shipped with no indication that 28 BeOS was preinstalled, except for the needlessly complicated floppy-disk based installation kit

COM PLAINT AND JU RY DEM AND - 8 1 that was placed in the bottom of the shipping carton. 2 Microsoft’s Success in Precluding Dual-Boot PCs 3 38. The same restrictions that deprived Be of the benefits it expected from the Hitachi 4 contract precluded Be from entering into any preinstallation contracts at all with other major PC 5 OEMs. 6 39. From 1998 onward, Be, with the assistance of industry giant Intel, attempted to 7 market BeOS to OEMs for dual-boot preinstallation on “Creativity PCs” targeted at professional 8 and amateur multimedia content creators, for whom Windows video and audio handling 9 capabilities are inadequate. Despite Intel’s support, the technical superiority of BeOS for such 10 multimedia applications, and the fact that Be eventually offered to license BeOS without royalty, 11 Be was unable to convince even a single major OEM to risk Microsoft’s displeasure by offering a 12 dual-boot “Creativity PC.” 13 40. In meetings with representatives on March 11, 1998, and July 14, 1998, 14 for example, Compaq personnel informed Be that Microsoft’s licensing restrictions would 15 prevent Compaq from offering preinstalled dual-boot computers. 16 41. Gateway similarly informed Be that Microsoft would not allow it to dual-boot 17 non-Windows operating systems. 18 42. BeOS was not the only victim of Microsoft’s restrictive licensing practices. For 19 example, versions of the “open source” operating system called run on Intel-compatible 20 PCs. Because Linux was created, and is continuously updated, by a global network of software 21 developers who contribute their labor for free, making Linux available to consumers in a dual- 22 boot mode with Windows should have been viewed by many OEMs as an economically 23 attractive option. Yet, during the time period relevant to this suit, no major OEM offered 24 computers preconfigured to dual-boot Windows and Linux. 25 Be’s Venture Into Internet Appliances 26 43. At the same time that Microsoft’s exclusionary licensing and discounting policies 27 and threatening conduct towards major OEMs precluded Be from entering the market for Intel- 28 compatible PC operating systems, Be was also positioning a version of BeOS in the then-

COM PLAINT AND JU RY DEM AND - 9 1 emerging market for operating systems for “Internet appliances.” The Internet appliance was 2 intended to be a simple, inexpensive, and easy to use computer that delivered Internet access and 3 application functionality through a browser interface without the need for Windows. 4 44. Although Microsoft was a competitor in the market for Internet appliance 5 operating systems with its Windows CE product, it did not at the time have a monopoly share of 6 that market. Nevertheless, Microsoft viewed the Internet appliance, and the operating-system 7 independent browser interface and cross-platform Java programming language that made it 8 possible, as threats to its monopoly on the Intel-compatible PC. 9 45. Microsoft attempted to prevent the Internet appliance from developing into a fully 10 functional platform that might compete with Windows-based Intel-compatible PCs by means of a 11 strategy it referred to internally as “embrace, extend, extinguish.” According to this strategy, 12 Microsoft publicly embraced industry-standard cross-platform protocols and programming 13 languages, such as Hypertext Markup Language (“HTML”) and Sun’s Java. It then extended 14 those standards, often subtly or secretly, when implementing them in its own products such as the 15 Internet Explorer browser, so that applications and Internet content created according to the 16 standards as extended by Microsoft would only work with Windows or Windows-based 17 browsers. The resulting fragmentation of the extended standards eventually resulted in those 18 standards becoming extinguished as tools for easily developing cross-platform applications and 19 content. This further reinforced the applications barrier to entry, and with it, Windows’s 20 dominant position in its own market. 21 The Java Experience 22 46. In one example of the “embrace, extend, extinguish” strategy, Microsoft 23 developed its own version of the Java Virtual Machine (“JVM”) to run applications written in 24 Sun’s cross-platform programming language on Windows. Microsoft also developed a suite of 25 programming tools to allow Windows-based developers easily to write Java Applications. 26 Microsoft did not disclose, however, that its Java programming tools by default produced Java 27 applications that would only run on its own JVM for Windows, and not on JVMs designed for 28 other operating systems on other platforms.

COMPLAINT AND JURY DEMAND - 10 1 47. Similarly, Microsoft publicly embraced the public standard HTML format for 2 Internet content delivered over the World Wide Web. But in fact, Microsoft designed its HTML 3 development tools to produce web pages that often could be viewed correctly only on 4 Microsoft’s Internet Explorer browser for Windows. 5 48. Largely as a result of Microsoft’s pollution of the Java and HTML standards, the 6 Internet browser has failed to develop into a viable platform for consistently delivering high- 7 quality applications and content on a variety of operating systems and hardware platforms. 8 Consequently, the Internet appliance market failed to develop into a viable substitute for 9 Windows-based Intel-compatible PCs, and has since been abandoned by virtually all major 10 computer hardware manufacturers. All of Be’s efforts to promote BeOS in this market have been 11 frustrated as a result. 12 The Compaq Experience 13 49. In addition to targeting the Internet appliance market in general, Microsoft 14 targeted Be’s efforts in that market specifically. In early 1998, Compaq approached Be about 15 jointly developing a BeOS-based Internet appliance. Over the course of the year, Be successfully 16 developed a working prototype of the Compaq machine. 17 50. Compaq repeatedly assured Be of its enthusiasm for the project, and stated that 18 only BeOS could meet the project’s technical, cost, and delivery timeline requirements. Compaq 19 assured Be that Windows CE was not suitable for the device. 20 51. In October 1998, however, Compaq informed Be that it had disclosed information 21 about the Be Internet appliance project to Microsoft. Later that same month, Microsoft Chairman 22 Bill Gates visited Compaq CEO Eckhard Pfeiffer as part of a “Digital Appliances Review.” 23 52. In early November, under pressure from Microsoft, Compaq informed Be that it 24 was no longer interested in licensing BeOS. 25 53. Although Compaq eventually reengaged Be in late 1999 to license a later version 26 of BeOS called “BeIA” on a line of Internet appliances, it distributed those appliances only on a 27 very limited basis in Europe, and shipped Windows CE on all machines of the same model sold 28 in the United States.

COMPLAINT AND JURY DEMAND - 11 1 Microsoft’s Interference With Be’s Financing Efforts 2 54. Microsoft not only closed off critical distribution channels for Be’s products, it 3 also impeded Be’s ability to finance its business. Microsoft, in conjunction with third parties 4 acting as its agents, succeeded both in artificially depressing the price at which Be was able to 5 sell its initial IPO shares and in preventing Be from engaging in a post-IPO effort to raise 6 investment capital through a private placement offering. 7 The Anticompetitive Effect of Microsoft’s Practices 8 55. As a result of Microsoft’s anticompetitive practices in the market for Intel- 9 compatible PC operating systems, including its willful maintenance of its own monopoly power 10 in that market, and in the related markets for Internet appliance operating systems and browsers, 11 Microsoft has had a direct, substantial, and adverse effect on competition by artificially raising 12 barriers to entry, foreclosing competition on the basis of price and performance, and stifling 13 innovation. Buyers of PCs and software have thus been forced to pay higher prices for less 14 innovative, inferior products. In addition, Microsoft’s unlawful conduct has forced Be to cease 15 doing business. 16 56. As a direct and proximate result of Microsoft’s illegal conduct, nearly the entire 17 market value of Be as a publicly traded going concern, which once exceeded one billion dollars, 18 has been eliminated. 19 57. Microsoft’s conduct has deprived Be of future profits from the licensing of BeOS 20 and BeIA. 21 58. Microsoft’s conduct has caused nearly all of the capital investment of Be’s 22 shareholders, as well as the money spent by Be in attempting to enter the relevant market, to be 23 lost. Be has also spent substantial sums attempting to mitigate its damages. 24 59. These injuries may each be proved with reasonable certainty, and are compensable 25 by treble damages under the antitrust laws of the United States. 26 THE GOVERNMENT’S CASE AGAINST MICROSOFT 27 60. The United States Department of Justice and the Attorneys General of nineteen 28 (19) states brought suit against Microsoft in connection with many of the facts and issues

COMPLAINT AND JURY DEMAND - 12 1 described above in the United States District Court for the District of Columbia, in suits 2 captioned United States of America v. Microsoft Corp., No. 98-1232, and State of New York et al. 3 v. Microsoft Corporation, No. 98-1233. 4 61. In that litigation, Microsoft itself urged the District Court to find that BeOS posed 5 a “serious threat[] to Windows’ category leadership, and well could displace Windows over 6 time.” See “Microsoft Corporation’s Revised Proposed Findings of Fact” ¶ 206 (Sept. 10, 1999). 7 62. On November 5, 1999 and April 3, 2000, the United States District Court issued 8 Findings of Fact (84 F. Supp. 2d 9) and Conclusions of Law (87 F. Supp. 2d 30) determining that 9 Microsoft violated sections 1 and 2 of the Sherman Act, along with several state antitrust 10 statutes, including California’s Cartwright Act and California’s Unfair Competition Act. 11 63. Microsoft appealed the judgment entered by the District Court. On June 28, 2001, 12 the United States Court of Appeals for the District of Columbia Circuit issued an opinion that 13 affirmed in part, reversed in part, and remanded in part the District Court’s rulings. United 14 States of America v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). Among other things, the 15 Court of Appeals affirmed the District Court’s ruling that Microsoft has monopoly power in the 16 market for Intel-compatible PC operating systems and that many of Microsoft’s exclusionary 17 business practices that harmed plaintiff constituted an illegal abuse of Microsoft’s monopoly 18 power in violation of Section 2 of the Sherman Act and state statutes. The Court of Appeals held 19 that: 20 a. The licensing of all Intel-compatible PC operating systems worldwide constitutes 21 a relevant antitrust market, and Microsoft has monopoly power in that market. 22 Id. at 51, 52, 56-57. 23 b. “Because the applications barrier to entry protects a dominant operating system 24 irrespective of quality, it gives Microsoft power to stave off even superior new 25 rivals.” Id. at 56. 26 c. The applications barrier to entry is a characteristic of the operating systems 27 market, not of Microsoft’s popularity or Microsoft’s efficiency. Id. at 56. 28 d. Microsoft undertook unlawful actions to maintain its monopoly in the operating

COMPLAINT AND JURY DEMAND - 13 1 system market and is liable under Section 2 of the Sherman Act for 2 monopolization of that market. Id. at 80-81. 3 e. Microsoft barred its rivals from all means of cost-efficient distribution. Id. at 64. 4 f. Microsoft’s anticompetitive behavior includes its prohibition on OEMs from 5 modifying the initial boot sequence. Id. at 62. 6 g. “[W]ith the exception of one restriction prohibiting automatically launched 7 alternative interfaces, all the OEM license restrictions at issue represent uses of 8 Microsoft’s market power to protect its monopoly, unredeemed by any legitimate 9 justification.” Id. at 64. 10 h. Microsoft’s deception of Java developers by making them think that the 11 Windows-dependent Java applications would be functional across platforms was 12 exclusionary and in violation of Section 2 of the Sherman Act. Id. at 76–77. 13 i. The causal link between anticompetitive conduct and the maintenance of 14 Microsoft’s operating systems monopoly is inferred when exclusionary conduct is 15 aimed at producers of nascent competitive technologies. Id. at 79. 16 j. “[I]t would be inimical to the purpose of the Sherman Act to allow monopolists 17 free reign to squash nascent, albeit unproven, competitors at will.” Id. at 79. 18 64. Although the Court of Appeals ordered a remand of the case as to the precise 19 remedies needed to redress Microsoft’s illegal monopoly maintenance, the Court of Appeals 20 upheld the District Court’s Findings of Fact and its Conclusion of Law that Microsoft violated 21 Section 2 of the Sherman Act. The Supreme Court denied Microsoft’s petition for a writ of 22 certiorari. 23 65. In light of the Court of Appeals’ final decision on liability in United States v. 24 Microsoft, and the binding and preclusive effect of that decision and the affirmed Findings of 25 Fact on subsequent claims for antitrust liability related to Microsoft’s actions, Microsoft is 26 collaterally estopped and may not relitigate those findings in this litigation. 27 28

COMPLAINT AND JURY DEMAND - 14 1 FIRST CLAIM FOR RELIEF MONOPOLY MAINTENANCE OF THE INTEL-COMPATIBLE 2 PC OPERATING SYSTEM MARKET (Sherman Act, Section 2) 3 66. Be incorporates by reference and realleges the averments of paragraphs 1-65 as if 4 fully set forth herein. 5 67. There is a relevant world-wide market for the licensing of Intel-compatible PC 6 operating systems. 7 68. Microsoft possesses monopoly power in the relevant market for the licensing of 8 Intel-compatible PC operating systems. 9 69. Microsoft’s monopoly power in the market for the licensing of Intel-compatible 10 PC operating systems is protected by durable barriers to entry. 11 70. Through the acts described above and similar conduct and practices, Microsoft 12 has purposefully and wrongfully maintained its monopoly in the market for Intel-compatible PC 13 operating systems by intentionally excluding Be from entering that market with its competing 14 operating system, BeOS, and by undermining the development of alternatives to Windows-based 15 Intel-compatible PCs. 16 71. There are no legitimate business justifications for Microsoft’s exclusionary and 17 anticompetitive conduct. To the that Microsoft has sought to achieve any legitimate 18 business purposes through its conduct, it has not used the least restrictive means for doing so, any 19 claimed procompetitive benefit is outweighed by the anticompetitive harm, and any purported 20 legitimate business justifications are mere pretexts for illegal monopoly maintenance. 21 72. Microsoft’s conduct has injured consumers and harmed competition. 22 73. Microsoft’s conduct has directly and proximately caused injury to Be’s business 23 and property. That injury is of the kind that the antitrust laws were intended to prohibit, and 24 therefore constitutes antitrust injury. 25 SECOND CLAIM FOR RELIEF 26 EXCLUSIVE DEALING (Sherman Act, Section 1, and 27 Clayton Act, Section 3) 28 74. Be incorporates by reference and realleges the averments of paragraphs 1-73 as if

COMPLAINT AND JURY DEMAND - 15 1 fully set forth herein. 2 75. Microsoft has coerced major OEMs to refuse to preinstall competing operating 3 systems alongside Windows on dual-boot enabled computers. That coercion has taken the form 4 of restrictions on the boot sequence, limitations on the use of Windows to enable other operating 5 systems to function, exclusionary and arbitrary discounting policies, and threats to reduce or 6 eliminate Windows OEM license discounts. 7 76. The effect of these practices has been to require major OEMs to preinstall 8 Windows exclusively on all computers. A substantial number of OEMs that otherwise would 9 have desired to license BeOS for dual-boot installation have been precluded from doing so as a 10 result of Microsoft’s exclusive dealing requirements. Microsoft’s illegal monopoly and 11 exclusionary practices meant that Windows, to the exclusion of all other operating systems, was 12 on virtually all Intel-compatible PCs. Microsoft thus foreclosed existing and potential avenues of 13 distribution for an Intel-compatible PC operating system. Moreover, Microsoft’s illegal 14 monopoly and exclusionary tactics foreclosed competition in a substantial share of the Intel- 15 compatible PC operating system market. 16 77. Microsoft’s exclusive dealing practices have substantially lessened competition 17 and elevated prices in the market for Intel-compatible PC operating systems. Microsoft’s 18 conduct has also directly and proximately caused injury to Be’s business and property. That 19 injury is of the kind that the antitrust laws were intended to prohibit, and therefore constitutes 20 antitrust injury. 21 78. There is no legitimate business justification for Microsoft’s exclusive dealing 22 practices and any purported legitimate business justifications are mere pretexts. 23 THIRD CLAIM FOR RELIEF THE CARTWRIGHT ACT 24 (Calif. Bus. and Prof. Code §§ 16720 et seq.) 25 79. Be incorporates by reference and realleges the averments of paragraphs 1-78 as if 26 fully set forth herein. 27 80. Microsoft has engaged in combinations of capital, skill, and acts with others with 28 the intent, purpose and effect of creating and carrying out restrictions in trade and commerce; and

COMPLAINT AND JURY DEMAND - 16 1 restraining and preventing competition in the relevant market of Intel-compatible PC operating 2 systems, thereby enabling Microsoft to perpetuate its monopoly of that market. 3 81. As a direct and proximate result of Microsoft’s unlawful combinations and 4 contracts to restrain trade and monopolize the relevant market, plaintiff has suffered injury to its 5 business or property and has been deprived of the benefits of free and fair competition on the 6 merits. That injury is of the kind that the antitrust laws were intended to prohibit, and therefore 7 constitutes antitrust injury. 8 FOURTH CLAIM FOR RELIEF UNFAIR COMPETITION ACT 9 (Calif. Bus. and Prof. Code §§ 17200 et seq.) 10 82. Be incorporates by reference and realleges the averments of paragraphs 1-81 as if 11 fully set forth herein. 12 83. Microsoft’s violations of the federal antitrust laws, as well as its conduct in 13 engaging in combinations of capital, skill, and acts with others with the intent, purpose, and 14 effect of creating and carrying out restrictions in trade and commerce; and restraining trade and 15 preventing competition in the relevant market for Intel-compatible PC operating systems in 16 violation of California law, constitutes and was intended to constitute unfair competition and 17 unlawful and unfair business acts and practices within the meaning of California Business and 18 Professions Code § 17200. 19 84. As a result of Microsoft’s violation of California Business and Professions Code § 20 17200, Microsoft has unjustly enriched itself at the expense of plaintiff. 21 85. To redress this unjust enrichment, Microsoft should be required pursuant to 22 Business and Professions Code § 17203 to disgorge its illegal gains for the purpose of making 23 full restitution to plaintiff. 24 FIFTH CLAIM FOR RELIEF TORTIOUS INTERFERENCE 25 (Common Law of California) 26 86. Be incorporates by reference and realleges the averments of paragraphs 1-85 as if 27 fully set forth herein. 28 87. Microsoft has tortiously interfered with Be’s prospective economic relationships.

COMPLAINT AND JURY DEMAND - 17 1 Microsoft interfered with the formation of specific prospective contracts between Be and Hitachi, 2 and between Be and Compaq. More generally, Microsoft intentionally interfered with Be’s right 3 to pursue its lawful business and employed unlawful means in doing so. 4 88. In the case of Hitachi and Compaq, Be had established economic relationships 5 that held out the probability of future economic benefit to Be. 6 89. Microsoft knew of the existence of Be’s relationships with Hitachi and Compaq. 7 90. Microsoft intentionally engaged in conduct designed to disrupt Be’s relationships 8 with Hitachi and Compaq and to prevent the formation of the kind of licensing agreements for 9 BeOS and/or BeIA that Be had been discussing with them. 10 91. Microsoft’s acts of interference were wrongful because those acts, including 11 Microsoft’s reliance on its license agreements with Hitachi and Compaq, were in violation of 12 federal and state law as described in the First through Fourth Claims for Relief above. Microsoft 13 did not act in good faith to protect any legitimate business interest, but instead with the improper 14 motive of preserving its unlawful monopoly over Intel-compatible PC operating systems and 15 preventing Be’s entry into that market. 16 92. Microsoft’s conduct actually disrupted Be’s relationships with Hitachi and 17 Compaq and prevented the formation of licensing agreements of the kind described earlier in this 18 Complaint, which otherwise would have been entered into, thereby causing injury to Be. 19 93. Be has suffered damages as a proximate result of Microsoft’s interference with its 20 prospective economic relationships with Hitachi and Compaq. 21 94. Microsoft acted willfully and with malice, and is therefore liable for punitive 22 damages as a result of its interference with Be’s prospective economic relationships with Hitachi 23 and Compaq. 24 95. In addition to interfering with those specific relationships, Microsoft more 25 generally interfered with Be’s ability to pursue its lawful business. In conducting that business, 26 Be had a reasonable probability of obtaining future economic benefit from the licensing of BeOS, 27 and later BeIA, both to OEMs and directly to end-users. 28 96. Microsoft knew that Be was attempting to enter the market for Intel-compatible

COMPLAINT AND JURY DEMAND - 18 1 PC operating systems and to establish contracts with major OEMs for the distribution of BeOS 2 (and later BeIA) through preinstallation of its operating systems on PCs and Internet appliance 3 devices. 4 97. As described previously in this Complaint, Microsoft engaged in a series of 5 intentional acts designed to disrupt Be’s prospective economic relationships and its ability to 6 conduct its business. Among other things, Microsoft established terms of its Windows licensing 7 agreements that precluded major OEMs from offering BeOS to consumers in a dual-boot 8 configuration with Windows on PCs. 9 98. Microsoft’s acts of interference were wrongful because those acts, including 10 Microsoft’s implementation and enforcement of its restrictive license agreements, were in 11 violation of federal and state law as described in the First through Fourth Claims for Relief 12 above. Microsoft did not act in good faith to protect any legitimate business interest, but instead 13 with the improper motive of preserving its unlawful monopoly over Intel-compatible PC 14 operating systems and preventing Be’s entry into that market. 15 99. Microsoft’s conduct actually disrupted Be’s prospective relationships with OEMs 16 and prevented the formation of beneficial licensing agreements for the distribution of Be’s 17 operating system products. Microsoft thereby destroyed Be’s ability to carry on its business. 18 100. Microsoft’s acts of tortious interference with Be’s ability to conduct its business 19 proximately caused Be damage, in an amount to be proven at trial. 20 101. Microsoft acted willfully and with malice, and is therefore liable for punitive 21 damages as a result of its wrongful interference with Be’s ability to pursue its lawful business. 22 DEMAND FOR JURY TRIAL 23 Plaintiff demands a trial by jury of all issues triable of right by a jury. 24 PRAYER FOR RELIEF 25 1. For compensatory damages in an amount to be proven at trial. 26 2. For an order trebling the amount of compensatory damages to be awarded 27 pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15. 28 3. For an order trebling the actual damages plaintiff has sustained pursuant to

COMPLAINT AND JURY DEMAND - 19 1 California Business and Professions Code § 16750; 2 4. For an order requiring Microsoft to make full restitution for its violations of § 3 17200, pursuant to Business and Professions Code § 17203. 4 5. For an award of punitive damages. 5 6. For the award to plaintiff of its attorneys’ fees and costs of suit. 6 7. For an award of pre-judgment and post-judgment interest on the above sums, to 7 the extent permitted by applicable law and at the highest rate allowed by law. 8 8. For such other relief as the Court may deem just and equitable. 9 DATED this 18th day of February, 2002. 10 MARC M. SELTZER CA Bar. No. 54534 11 SUSMAN GODFREY L.L.P. Suite 950 12 1880 Century Park East Los Angeles, California 90067-1606 13 Telephone: (310) 789-3100 14 STEPHEN D. SUSMAN CHARLES R. ESKRIDGE III 15 SUSMAN GODFREY L.L.P. 1000 Louisiana, Suite 5100 16 Houston, Texas 77002-5096 Telephone: (713) 651-9366 17 PARKER C. FOLSE III 18 JONATHAN M. SHAW IAN B. CROSBY 19 EDGAR G. SARGENT SUSMAN GODFREY L.L.P. 20 1201 Third Avenue, Suite 3090 Seattle, Washington 98101 21 Telephone: (206) 516-3880 22 23 By______/s/______Marc M. Seltzer 24 [signed with permission] 25 Attorneys for Plaintiff Be Incorporated 26 CERTIFICATION OF INTERESTED ENTITIES OR PERSONS 27 Pursuant to Civil LR 3-16, the undersigned certifies that the following listed persons, 28

COMPLAINT AND JURY DEMAND - 20 1 associations or persons, firms, partnerships, corporations (including parent corporations) or other 2 entities (i) have a financial interest in the subject matter in controversy or in a party to the 3 proceeding, or (ii) have a non-financial interest in that subject matter or in a party that could be 4 substantially affected by the outcome of this proceeding: 5 6 Microsoft Corporation and its shareholders 7 Be Incorporated 8 and its shareholders 9 Currently, both Be and Microsoft are public companies with many thousands of shareholders. 10 ______11 Attorney of Record for Plaintiff Be Incorporated 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

COMPLAINT AND JURY DEMAND - 21